Magic asterisks

27/03/2014 § 3 Comments

I’ve been fighting magic asterisks lately.

Unfortunately, I’ve been doing it secretly — anonymous reviewer, confidential client work — so I can’t share the details. I can’t even show you the costume. But I can rant a bit.

The original Magic Asterisk (TM) was a Reagan-era budget device from David Stockman. To make the net budget come out right, he resorted to adding asterisks that indicated unspecified spending cuts. The cuts didn’t happen, of course, but the budgets balanced. The books might not have, but the budgets did.

I am starting a collection of terms that people use in economics as magic asterisks. These are devices — rhetorical, mainly — to get them from what they can prove to what they wish to be true. They are little bridges from reality to ideology.

Here is the start of my collection, and why [note heavy use of sarcasm]:

  • Lock-in, path dependence — sure, the decision you face looks straightforward, but the unspecified opportunities that you are destroying in the fractal future are amazingly valuable! If you make the wrong choice, you will be forever condemned to a life of regret and penury.
  • Non-linear — oh, man, it’s gonna go boom! Don’t you see, it’s non-linear. Just a little push, and you’ll be smiling it’s all over! Like, y’know, compounding interest and discount rates and the parabolic effect of gravity on a tossed ball.
  • Uncertainty — you don’t really know, do you? The future is uncertain. Anything could happen. Oh, and maybe some evil demon is just dreaming all this.
  • Chaos theory — classical mechanics doesn’t really understand cause and effect. Butterfly wings and hurricanes, that’s all I’m saying. It may look unimportant, but it could have really big consequences.
  • Bounded rationality — you can’t know everything! and people make mistakes! That means you don’t really know anything and you’re probably even wrong about that.

Don’t misunderstand me. All these terms have meanings. Actual, y’know, defined meanings that can help us understand economics better. Take bounded rationality. As Simon developed the idea, it focused on using rules of thumb in structured environments to achieve a ‘good enough’ outcome without optimising. Some people think it just means not optimising. Some people think it means optimising subject to cognitive constraints. It was something different — it was about the method that people used. Powerfully, it shows how using rules of thumb is useful in predictable circumstances but possibly catastrophic in others.

Feel free to add your own.

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§ 3 Responses to Magic asterisks

  • What’s depressing is that it’s so hard to peg what area you’re working in. It could totally be alcohol regulation, but it could just as easily be a pile of other stuff. Benefits of cycling? Another undersea cable? Optimal population with agglomeration effects?

  • Matt Nolan says:

    Love it – and you could be working on pretty much any policy question imaginable when dealing with those comments. I’ve got:

    Second-order: Something I don’t want to model. Something that is “obviously” unimportant.

    Y causes X: It’s not simultaneously determined, but you define it one way and its actually the other way around.

    Perfect information: What you must be assuming since you don’t agree with me

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